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Companies U and L are identical in every respect except that U is unlevered while L has $12 million of 7% bonds outstanding. Assume that all of the original M&M assumptions are met, that EBIT is $3 million for both companies and that the cost of equity to company U is 9%. If there are corporate taxes at the 34% marginal level for both firms what is the M&M cost of equity for firm L. 9% 7% 59% 10.125%

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